Naira Could Fall to N3,000 per Dollar if Fuel Subsidy Returns, Oyedele Warns

Nigeria’s Minister of Finance and Coordinating Minister of the Economy, Prof. Taiwo Oyedele, has warned that the naira could weaken to about N3,000 per dollar within months if the Federal Government restores petrol subsidies.

Oyedele said bringing back the subsidy could cost the government more than N16 trillion annually, placing additional pressure on public finances and potentially reversing gains made since the removal of the subsidy in 2023.

The minister made the remarks at a press briefing in Abuja on Thursday, as global oil market disruptions continued to push up fuel prices and increase the cost of living for households and businesses.

According to him, a government-backed petrol price of N500 per litre would require more than N16 trillion annually, while restoring prices to pre-reform levels could cost over N20 trillion a year.

He explained that these estimates were based on Nigeria’s daily petrol consumption of approximately 50 million litres and excluded additional costs associated with inflated demand and cross-border smuggling.

The finance minister argued that reinstating the subsidy would not reduce the actual cost of producing and importing petrol. Instead, it would transfer part of the cost from consumers to the government, leaving taxpayers to finance the difference.

He noted that crude oil, shipping and refining inputs are priced in dollars, meaning that keeping petrol artificially cheap would require the government to absorb the impact of international prices and exchange rate movements.

Oyedele also distinguished between production subsidies, which support producers facing difficulties competing at market prices, and the proposed arrangement, which would effectively discount the price paid by consumers.

He warned that maintaining fixed pump prices while crude oil prices, freight charges and exchange rates fluctuate would expose government finances to potentially unlimited costs.

“The subsidy hides volatility; it does not remove it,” he said, explaining that the financial burden would ultimately fall on the public balance sheet.

The minister added that petrol in Nigeria was already considerably cheaper than in many neighbouring countries. According to him, widening the price gap could encourage smuggling and leave Nigerian taxpayers effectively subsidising fuel consumption beyond the country’s borders.

He further warned that artificially low petrol prices could encourage higher domestic consumption at a time when global fuel supplies remain under pressure, potentially contributing to further increases in international prices.

Oyedele said the removal of petrol subsidies released N15.8 trillion into the Federation Account between June 2023 and December 2025, with N10.4 trillion going to state and local governments.

He claimed that the additional revenue had helped improve the financial position of subnational governments, noting that 27 states were struggling to pay salaries reliably in May 2023.

According to the minister, none of the states remained in that position at the time of his remarks.

At the federal level, he said, a substantial portion of the savings, alongside additional internally generated revenue and borrowing, had supported spending on wages, infrastructure, electricity subsidies and social transfers.

The remaining funds, he explained, helped stabilise the economy, although a significant portion of government resources had also been absorbed by higher debt-servicing costs following interest rate increases aimed at controlling inflation.

Oyedele warned that reversing the subsidy policy could weaken government revenue, increase borrowing costs and put pressure on the naira.

He said a deterioration in public finances could also threaten Nigeria’s recent credit rating improvements, including an upgrade from S&P Global Ratings, which he described as the country’s first from the agency in 14 years.

The minister cautioned that capital outflows, falling foreign reserves and further currency depreciation could follow, putting recent progress in controlling inflation at risk.

He consequently projected that the exchange rate could approach N3,000 to the dollar within months if the subsidy returned, while petrol could cost at least N2,000 per litre under the resulting economic pressures.

The figures represent the minister’s warning about a possible scenario, rather than a confirmed forecast that the exchange rate or petrol price will reach those levels.

Global Oil Crisis Driving Up Petrol Prices

Oyedele attributed the recent increase in petrol prices partly to disruptions in the international energy market, particularly the conflict in the Gulf region.

He said shipping through the Strait of Hormuz had fallen sharply by mid-September, reaching approximately 13 per cent of its pre-war level. Brent crude oil was also trading above $100 per barrel, nearly 50 per cent higher than before the conflict, according to figures he presented.

The minister added that the pressure was particularly severe in the market for refined petroleum products, with diesel exports from the Middle East and Russia reportedly falling by 75 per cent compared with the previous year.

He also pointed to rising crude oil tanker charges from West Africa, saying increased competition for supplies outside the Gulf had pushed shipping costs to record levels in September.

According to Oyedele, the International Energy Agency expected pressure on refined products to persist for months, leaving countries around the world exposed to higher energy costs.

He cited examples from other countries, including the United States, the Philippines and Bangladesh, where fuel and energy prices had reportedly risen sharply.

The minister also referenced Zambia, where the government suspended fuel duties to cushion consumers from rising prices. He said the temporary relief had been followed by a pump-price increase of approximately 24 per cent when the measure ended.

For Nigeria, Oyedele said petrol had risen from about N830 per litre before the conflict, when crude oil traded near $70 per barrel, to an average of approximately N1,400 per litre at the time of his remarks.

He maintained that the increase was largely driven by international market developments beyond Nigeria’s control and argued that removing the subsidy had helped prevent an even greater impact on the economy.

The minister acknowledged that higher oil prices presented both opportunities and challenges for Nigeria.

While increased crude oil prices could boost government revenue, he said the country’s oil production remained below expectations, while existing crude oil commitments linked to the former subsidy arrangement continued to limit the benefits.

At the same time, higher fuel prices have increased transportation, logistics and operating costs for households and businesses, with low-income Nigerians facing some of the greatest difficulties.

Oyedele, however, argued that the continued availability of petrol across the country was an important benefit of the current arrangement.

He said Nigerians had not experienced the widespread fuel queues associated with previous supply disruptions, adding that the availability of petrol was an important part of affordability during a crisis.

The minister also promised that the Federal Government would introduce measures in the coming days to ease the impact of rising fuel prices on households.

Although he did not provide specific details of the proposed measures in the remarks presented, his statement suggests that the government is considering ways to cushion consumers without restoring the costly petrol subsidy.

The debate over fuel subsidy therefore remains a major economic issue for Nigeria, as policymakers face the challenge of balancing the need to protect vulnerable households with the cost of government intervention, exchange rate stability and the sustainability of public finances.

Source: The Punch